Car loan refinancing question

**Like2Plan** · 10-28-2012, 07:05 AM

Is this a trick question?

What is the benefit will you get by spreading your payments out longer and paying more? In addition to paying more, you run the risk of being upsidedown on your loan. If your car gets totaled or stolen, you will still owe money and have no vehicle.

**jpg7n16** · 10-28-2012, 07:05 AM

Originally posted by andros47 View Post

I am currently making payments on a 2010 Ford Escape. I owe about 17,000 on it and have a 0% APR interest loan. The car is due to be paid off in 36 months. The payments are currently at 480/month.

Well that's simple enough, 36 * 480 = $17,280

I have the opportunity to refinance the car loan at 5% interest for six years. That means I would pay 18,670 over the next 65 months, but my payments would be reduced to 280/month.

Um. No. Based on the figures you gave, that math doesn't work out at all.

For starters, 18,670/65 = $287.23
And paying off 17,280 at that rate is only an interest rate of 2.85%.
If the true term is 65 months, not 6 years, then the payment should be $304.02 -- and you would pay 19,761.25 to remove your debt ($2,481.25 interest)
If the term is actually 6 years (72 months), then the payment would be $278.29 -- and you would pay $20,037.11 to remove your debt ($2,757.11 interest)

No matter how you look at it, your numbers don't add up.

I net about 5000 a month.

Any advice on the best course here.

You should have no problem paying your current loan, and I see no reason why you should start paying them interest to do so.

I certainly would not pay it off early, but just keep making the payments as scheduled.

Are you in some sort of cashflow bind? Why are you even considering this?

**Blessed** · 10-28-2012, 08:17 AM

I can't see any benefit too it. Are you struggling under a lot of other debt that you are struggling to pay everything and looking to reduce the payment???

**disneysteve** · 10-28-2012, 10:40 AM

I think this is the first time I've ever heard someone ask about refinancing to a higher interest rate and a longer term. As everyone else has said, absolutely not. That makes no sense at all.

**JustBill** · 10-28-2012, 04:55 PM

Welcome to the Forums. If for whatever unspecified reason you need to reduce your monthly payment, you can do much better at penfed. Up to 60 months @ 1.49%, 3.49% 61-72 months. Not recommending that you re-fi, but you know your circumstances. Just giving you another path if needed. Best of luck.

**snafu** · 10-28-2012, 07:34 PM

You've asked for your best course...the basic rules say don't set yourself up for problems. Car payments should not exceed 20% of income or extend more than 36 month. 24 months are the better. The consensus confirms your best course to be the original agreement unless you have overextended.

**Ramose** · 10-28-2012, 10:22 PM

This is the strangest question I have seen on the forums! Why would you want to pay interest and be in debt longer?

**kv968** · 10-29-2012, 03:29 AM

Originally posted by Ramose View Post

This is the strangest question I have seen on the forums! Why would you want to pay interest and be in debt longer?

It would free up monthly cash flow but be more expensive in the long run. Kinda like when people pay only the minimum on their CC..."Oh, I owe $1000 but only have to pay $40? What a bargain."

**bjl584** · 10-29-2012, 05:37 AM

As others have said, this is a bad idea.

You will increase cashflow, but that isn't a good way to view your finances. You need to look at the entire picture. A refinance will cost you more in the longrun.

**disneysteve** · 10-29-2012, 06:18 AM

Originally posted by kv968 View Post

It would free up monthly cash flow but be more expensive in the long run.

Now that we've beaten the dead horse....

OP, if you could tell us why you are even considering this, we can help you decide if it could possibly make sense. Your current payment is 9.6% of income, which is within the recommended guideline of 10% though just barely. If you are having a cashflow issue or are struggling with other higher interest debt payments, that could explain why you are looking to refi the car.

Car loan refinancing question